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I think we're all aware by now that the economies of the centrally planned Soviet block didn't in fact make anyone all that well off. The general standard of living on offer to the citizenry just wasn't all that good.

Something that surprised rather a lot of people for the early socialists (which would include such as the Webbs, HG Wells and GB Shaw) were convinced, clearly it was obvious, that planning the system of production would be more efficient than this silly competition and repetition of tasks that is found in a market based system.

"With a view to corporate takeover, Volkswagen AG sent a Herr Heuss to Zwickau to find out how the Trabants (relatively cheap East German cars) were made there. He emerged shocked from the huge plant, babbling “My God. The Trabant operation was value-subtracting: valuable material, labor, and capital inputs went in at one end; shabby Trabies came out at the other, their bodies made from compacted trash. The final output was worth less than the sum of the inputs. What was not fully understood at the time was that East Germany’s whole economy was value-subtracting and cost-unconscious. In 1989, Hans Modrow, the last communist head of the GDR, put the East German economy’s net worth at 1.5 trillion West Germanmarks (DM). A year later, his Christian Democratic successor, ‘Lothar de Maiziere, slashed the figure to DM 800 billion. After unification, Detlev Rohwedder head of the privatization agency Treuhand, put the value of the assets on his agency’s books at a comparable DM 600 billion, but on second thought, a year later, lowered this assessment to zero assets and liabilities-just balancing each other out. In 1994 Birgit Bruel, Rohwedder’s successor, put the figure at minus DM 300 billion. By the end of1995 some DM 700 billion gross (more than $1 trillion) and DM500 billion net ($750 billion) of public money will have been spent on the “cure of Trabies.”

TRANSITION, a newsletter of the WORLD BANK, Number 5-6, May-June 1996, page 15

Leave aside the politics, the repression and the sheer human misery for a moment and concentrate just on the economics. The value of the things being produced was lower than the value of the things that were being consumed to produce them. The Trabant factory actually subtracted value, not increased it (and in my work in Russia I was told of a steel plant that managed this unhappy feat as well. The value of the iron coming out was less than the value of the iron ore and coke going in).

Nobody actually wanted to destroy value, of course. No one is silly enough, not even a Soviet style socialist, to want to do that. The problem is that they didn't know they were destroying value. As they had no market system, no price system which results from that, to tell them what the value of the raw materials was thus they had no way of knowing, no way of even calculating, whether the Trabbies were value adding or not.

Please note this is nothing about socialism or capitalism, about the exploitation of labour or man. It is purely about how do we get the information to decide what it is that we should be doing? And prices, which come from markets, are the only way we actually have of making that decision.

The price system is important, not just some marginal feature of our current society that we can disregard or do away with. Without it we can't even decide what to do.